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Scott Neal

Scott Neal, CPA, CFP, is the president of D. Scott Neal, Inc., a fee-only financial planning and investment advisory firm with offices in Lexington and Louisville. Reach him at or by calling 1.800.344.9098.

Getting to the Basics — Legacy

With the dramatic increase in the federal estate tax exemption in 2018, (now standing at $12.92 million) we have witnessed a decreased interest in doing effective estate planning. That’s too bad, because reducing or avoiding estate taxes is only one benefit of effective estate planning. Providing for and protecting assets for those you care about is a critical aspect of financial management, and often gets short shrift by busy professionals. The nature of medical practice, with its demanding schedules and high-stress environment, can make it difficult for physicians to find the time to focus on their personal financial affairs. However, estate planning is essential for ensuring that one’s assets are protected and distributed according to their wishes. It’s important to know that if you do not have an estate plan, the state has one for you.

Understanding Estate Planning

Estate planning is the process of organizing and managing an individual’s assets in the event of death or incapacitation. It involves the creation of legal documents that outline the management and distribution of assets, the care of minor children, and healthcare directives. For physicians, who often have significant and complex financial portfolios, estate planning is particularly important.

Wills and Trusts

A will is a legal document that specifies how a person’s assets should be distributed after their death. For physicians, a will ensures that their wishes regarding the distribution of their estate are honored. Without a will, the state’s intestacy laws will determine the distribution of assets, which may not align with your intentions. It is vitally important that the will be properly drafted by experienced legal counsel, preferably one who specializes in estate planning.

Trusts can be another critical component of estate planning. A trust is a fiduciary arrangement that allows a third party, or trustee, to hold and manage assets on behalf of beneficiaries. Trusts can be particularly beneficial for physicians because they can help manage and protect assets during the physician’s lifetime as well as postmortem. Trusts can also provide tax advantages and help avoid probate, a time-consuming and often expensive legal process.

Power of Attorney

A power of attorney (POA) is a legal document that grants a designated individual the authority to make financial and legal decisions on behalf of the physician. Physicians, given the high-risk nature of the profession and potential for unexpected medical events, should have a durable power of attorney in place. This ensures that their financial affairs are managed according to their wishes, even if they are unable to do so themselves. You can add “springing powers” to a POA that will trigger its use only if certain, pre-defined events occur.

Healthcare Directives

Healthcare directives, including living wills and healthcare powers of attorney, are perhaps less essential components of an estate plan for someone in healthcare, but should still be considered. A living will outlines the maker’s preferences for medical treatment in the event he or she becomes unable to communicate their decisions for themselves. A healthcare power of attorney designates a trusted individual to make healthcare decisions on the maker’s behalf. These directives ensure that your medical preferences are respected, while also reducing the burden on family members during difficult times.

Beneficiary Designations

Physicians should regularly review and update beneficiary designations on life insurance policies, retirement accounts, bank accounts, and other financial instruments. These designations take precedence over instructions in a will, so it is crucial to ensure they are current and reflect your wishes. Horror stories abound in the financial planning literature telling of significant sums being left to unintended beneficiaries because a designation was made years ago and never updated.

Tax Planning

While the exemption for federal estate taxes is presently high, the increased level of exemption is scheduled to end in 2025. Congress will have to act to extend it. We see clients expend a lot of energy to reduce income taxes, but tax planning requires optimizing strategies to reduce estate, gift, and income taxes. This might include setting up trusts, making charitable donations, and utilizing lifetime gift exclusions.

Unique Considerations for Physicians

Asset Accumulation & Protection

Hopefully, you have been or will be able to accumulate rather significant assets over the course of your career. Proper estate planning ensures that these assets are protected and efficiently transferred to heirs, minimizing the impact of estate taxes and legal fees.

Risk of Malpractice Lawsuits

Sorry to remind you, but being at higher risk of malpractice lawsuits exacerbates the need for excellent legal documents. Estate planning can include asset protection strategies to shield personal assets from potential litigation. Establishing trusts and other legal structures can help protect a physician’s estate from creditors and legal claims, ensuring that their assets are preserved for their intended beneficiaries.

Succession Planning for Medical Practice

For physicians who own their practice, succession planning is a critical aspect of estate planning. Succession planning ensures that the medical practice continues to operate smoothly after the physician’s retirement, untimely death, or disability. This involves identifying and training a successor, outlining the terms of the practice’s transfer, and ensuring that the practice’s value is preserved for the physician’s estate and his or her dependents.

Complex Family Dynamics

While not unique to physicians, many professionals often face complex family dynamics, such as blended families, dependent children, or family members with special needs. Effective estate planning can address these complexities by creating tailored solutions that provide for each family member according to unique needs. This might include setting up special needs trusts as well as ensuring adequate guardianship arrangements for minor and / special needs children or other dependents.

Steps to Effective Estate Planning

1. Start Early

It is never too early to start estate planning. Everyone should begin planning as soon as they start their careers to ensure their assets are protected and their wishes are documented. Early planning also allows physicians to take advantage of tax-saving strategies and accumulate wealth in a structured and efficient manner.

2. Consult Professionals

Estate planning can be complex, particularly for people with substantial and diverse assets. Consulting with estate planning attorneys, financial advisors, and tax professionals is crucial. These experts can provide tailored advice, ensure compliance with legal requirements, and help create a comprehensive and effective estate plan tailored to your unique circumstances, wishes, and needs.

3. Regularly Review and Update the Plan

Life circumstances change, and estate plans should be reviewed and updated regularly to reflect these changes. Physicians should certainly revisit their estate plans after major life events, such as marriage, divorce, the birth of a child, or significant changes in their financial situation. But a periodic review by a professional will make sure that you are taking care of changes in law and that the documents remain aligned with the current wishes and needs.

4. Communicate with Family Members

Open communication with family members about estate planning can prevent misunderstandings and conflicts. You should discuss your estate plans with your spouse, children, and other key family members to ensure that everyone is aware of your wishes and understands the reasoning behind your decisions. This transparency can ease the execution of the estate plan and provide peace of mind for both the physician and loved ones.


Estate planning is a vital aspect of financial management for practicing physicians. It provides a structured approach to asset protection, tax minimization, and the provision for loved ones. Given your unique circumstances: high earning potential, risk of malpractice lawsuits, and the importance of retaining value in a medical practice for the benefit of colleagues and employees as well as heirs, there is a good chance you should prioritize estate planning as an integral part of your professional and personal life. By starting early, consulting with professionals, regularly updating plans, and communicating with family members, you can ensure that your estate is managed and distributed according to your wishes, and not merely that of the government. Besides that, your heirs will remember you more fondly if you leave them well prepared.